Class action had accused the L.A.-based insurance management firm of charging excessive fees to customers. Farmers says plaintiffs' claims are without basis but it agreed to settle to end the case.

Reporting from Los Angeles and Sacramento — Farmers Group Inc., a Los Angeles-based insurance management firm, and its Swiss corporate parent Thursday agreed to pay $455 million to 13 million current and former policyholders to settle a 2003 lawsuit that accused them of charging excessive fees to customers.

The settlement, if approved by a Los Angeles County Superior Court judge, would resolve all claims dating back to 1999. Payments to people who purchased Farmers home, automobile, personal liability and commercial property coverage are expected to average $35, but individual settlements could vary considerably, Farmers Group said.

Lawyers for the plaintiffs are likely to do better. Farmers Group will pay them as much as $90 million.

Farmers Group and Zurich Financial Services Group, however, asserted that there was no basis for "the plaintiffs' claims regarding the management services fees FGI charged."

Farmers Group Chief Executive Robert Woudstra said his company settled rather than prolong the uncertainty and cost of a legal battle that's already lasted seven years. Farmers Group manages the third-largest personal lines insurance company in the United States.

At the same time, Woudstra said Farmers Group would "increase our disclosure [about how the fees work] over and above what we believe we should do."

Benjamin Fogel, the lead plaintiff in a nationwide class action, purchased policies from three separate exchanges — a type of insurance cooperative — that in turn paid management fees to Farmers Group.

Fogel alleged that policyholders were charged too much by Farmers Group. The company served as the legal "attorney-in-fact" for the exchanges, underwriting the risks, setting premiums, processing paperwork and billing but not handling claims.

The fees are collected as a percentage of premiums paid to the exchanges and passed along to Farmers Group. In 2000, the fees totaled $1.5 billion.

Fogel accused Farmers of breaching its legal duty as well as committing fraud and engaging in unfair business practices.

The arrangement "is a sweetheart deal where they pass big amounts of money around in the form of management fees paid by the consumer," said insurance consumer attorney Harvey Rosenfield, whose organization filed a legal brief supporting the plaintiffs.

Farmers denied Fogel's and Rosenfield's allegations.

In the end, the settlement "is very good for policyholders," said attorney Thomas V. Girardi of Los Angeles law firm Girardi Keese, which helped negotiate the settlement. "It'll help Farmers Insurance give fair premiums."

The settlement, according to Zurich, will cut its third-quarter earnings by $295 million.